In In re A & M FLORIDA PROPERTIES II, the parties disputed the terms and obligations relevant to a purchase and sale agreement for property.  The plaintiff claimed the defendant failed to disclose information that would ultimately have the effect of increasing plaintiff’s purchase price. The defendant claimed that the plaintiff was fully informed of the transaction details and requested emails and other documents from plaintiff to prove plaintiff had knowledge of the details. During e-discovery, the plaintiff’s counsel made the following two costly errors that led to a potentially embarrassing sanction show down with his client:

1. Issuing a broad instruction to perform a “company-wide” search without more detailed instructions
2. Failure to communicate with key IT personnel and employees to understand the client’s retention policies and data systems

The plaintiff’s early productions raised red flags for the defendant because they did not include any internal emails or an email that had previously been exchanged between the parties.  In response, the plaintiff’s outside counsel ordered his client to conduct a “company-wide” search to straighten out the email production issues. The plaintiff’s Chief Technology Officer (CTO) was tasked with overseeing the search, but the search was limited to email in the “live” system and did not include employee archives that the CTO knew existed.  The plaintiff’s counsel later admitted that he did not know the difference between archives and live inboxes and the CTO claimed access to the archives would have been provided to the defendant if only she had been asked. Following multiple searches by a forensic examiner and months of delay, over 9,500 additional emails were eventually produced from the archives that were initially overlooked.

Judge Gonzalez refused to order dismissal or an adverse instruction since the evidence was eventually produced and there was no evidence of bad faith.  However, Judge Gonzalez showed little sympathy for counsel’s failure to “understand the technical depths to which electronic discovery can sometimes go” or to “gain a better understanding of GFI’s [defendant’s] computer system” and issued monetary sanctions to cover the cost of defendant’s attorney fees and forensic examiner.  To make matters worse, the judge also ordered a future hearing to determine how to allocate the cost of sanction between the plaintiff and their lawyers.

Can You Say Embarrassing?

This type of hearing tends to uncomfortably pit client and counsel against each other in a game of he said, she said.  This isn’t Qualcomm revisited where sanctions were in the millions and attorneys from top law firms were scrapping to keep their licenses to practice law.  Nonetheless, the stakes are always high when you’re dealing with sanctions.  I can hear the arguments now:

Outside Counsel:  “When I said ‘company-wide’ search I meant a ‘company-wide’ search!”

Client:  “Well, if you would have been more specific, I would have known to search the archives.  You’re the lawyer after all.  Haven’t you done this before?”

Only a few know the details of what actually transpired and getting into the blame game with your client is something most attorneys want to avoid.

Lessons Learned

The lessons learned in this case are many, but here are a few key points to consider for both law firms and the clients they represent:

• Counsel and corporate IT must over-communicate: at the onset of litigation lawyers and IT should caucus to discuss critical e-discovery items and communicate with each other throughout the entire e-discovery process to ensure risk items related to technology (or anything else) are identified and minimized.
• Senior corporate executives need to take e-discovery seriously: the risk of poorly executed e-discovery isn’t just an issue for the GC. These issues can expose other senior executives (the CTO in this case) to embarrassment and their companies to monetary sanctions.
• The duty to preserve ESI is broad and organizations should utilize the right technology solutions to minimize the risk of error: searching email servers and ignoring other sources where relevant files may exist can harm the business as well as the personal reputations.  Companies should leverage technology solutions that allow for automated and repeatable data collections from multiple data sources like servers and laptops/desktops simultaneously to reduce the risk of human error and sanctions.

Conclusion

In Re Florida A&M Properties II serves as yet another reminder that the bench in the Southern District of New York has little tolerance when practitioners fail to understand the intersection between law and technology.  Since other jurisdictions often look to decisions from the Southern District of New York as persuasive authority, lawyers in other jurisdictions should take note.

On appeal, United States Magistrate Judge Barbara Major provided a quick summary for those who haven’t been following the trials and tribulations closely.  During the initial hearings, Judge Major found that Qualcomm “intentionally withheld tens of thousands of documents” during discovery.  In reaching this conclusion she also stressed the “quantity of suppressed documents, the ease with which Qualcomm ultimately was able to locate the documents, the simplicity and relevancy of the search terms and search locations that led to the discovery of the documents, and the lack of evidence indicating that Qualcomm had engaged in any meaningful oversight of its document production.”

As to finding the scapegoats, and levying $8.5M in sanctions, Judge Major held that six attorneys assisted Qualcomm in withholding the critical documents by “failing to conduct a reasonable inquiry into the adequacy of Qualcomm’s document production.”  She specifically identified several inadequacies in Qualcomm’s document search, including “the failure to search the computers belonging to, or used by, deponents and trial witnesses, the failure to adequately investigate when significant, relevant, and unproduced documents were discovered, and the failure to ensure there was a legitimate factual basis for the legal arguments made to the Court before making them.”

After her initial sanctions order was set aside, on remand Judge Major provided the responding attorneys with “an almost unlimited opportunity to conduct discovery,” and during fifteen months, the parties undertook a massive discovery effort – including searching and reviewing over 1.6 million documents.  In resolving the Order to Show Cause, Judge Major reversed tracks despite concluding “this massive discovery failure resulted from significant mistakes, oversights, and miscommunication on the part of both outside counsel and Qualcomm employees.”  Yet, the testimony “also revealed that the Responding Attorneys made significant efforts to comply with their discovery obligations,” causing the Court to ultimately decline to sanction any of the Responding Attorneys.

Judge Major, in an effort to better educate the bar, goes on to detail some of the many electronic data discovery abuses. This provides a set of important lessons that for anyone in the practice of e-discovery:

1. “The fundamental problem in this case was an incredible breakdown in communication. The lack of meaningful communication permeated all of the relationships (amongst Qualcomm employees (including between Qualcomm engineers and in-house legal staff), between Qualcomm employees and outside legal counsel, and amongst outside counsel) and contributed to all of the other failures.” The communication issue has been raised by many including Judge Scheindlin (who quoted Cool Hand Luke) and is one of the many reasons that Sedona had pushed for more cooperation in the discovery process.  I cannot stress the important of transparent communication in the e-discovery process.  Not only is it mandated, it’s simply a wise practice.
2. “Moreover, outside counsel did not obtain sufficient information from any source to understand how Qualcomm’s computer system is organized: where emails are stored, how often and to what location laptops and personal computers are backed up, whether, when and under what circumstances data from laptops are copied into repositories, what type of information is contained within the various databases and repositories, what records are maintained regarding the search for, and collection of, documents for litigation, etc.” This failure too, first widely articulated in Zubulake V (and followed by Phoenix Four, Inc.,) requires counsel to discover all sources of relevant information involving substantial communicating with information technology personnel and key players in the litigation to understand how electronic information is stored.  Failure here (even absent spoliation) is grounds for sanctions.  See, In re A&M Fla. Props. II, LLC, 2010 WL 1418861 (Bankr. S.D.N.Y. Apr. 7, 2010)
3. “Finally, no attorney took supervisory responsibility for verifying that the necessary discovery had been conducted (including ensuring that all of the correct locations, servers, databases, repositories, and computers were correctly searched for potentially relevant documents) and that the resulting discovery supported the important legal arguments, claims, and defenses being presented to the court.” Where does the buck stop? It’s clear that a supervisory role with the proper experience in e-discovery is a critical component to an efficient and defensible e-discovery process.
4. Another factor that contributed to the discovery failure was a lack of agreement amongst the participants regarding responsibility for document collection and production. See previous comments about the importance of cooperation and communication.

So despite all those blunders Judge Major wasn’t able to find any evidence that the involved attorneys acted in bad faith, which allowed her to rationalize her change of heart.  But, if I were counsel reading the opinion I wouldn’t take this reversal as a license to conduct shoddy legal discovery because the bar (pun intended) is quickly rising such that missteps occurring two years ago probably won’t be tolerated today (see Judge Scheindlin’s latest opinion – Pension Committee).

Qualcomm is still a wake-up call, but just one that (fortunately for the involved attorneys) won’t end up an enduring disaster.

Learn More On Litigation Software & Litigation Support Software.

The reason was two articles about e-discovery in the mainstream media which appeared within a week of each other. The first was in the Wall Street Journal, which wrote about how tech firms are at war with lawyers. According to the Journal, the fact that companies are saving money by using e-discovery software is bad news for lawyers, since they are “facing the loss of lucrative client fees.” In response, the lawyers are fighting back: “The attorneys counter that there are pitfalls to replacing them. Early this year, a federal judge required chip maker Qualcomm to pay rival Broadcom more than $8 million after it failed to uncover and share emails relevant to a case.”

I am sure there are lawyers who see technology as a threat, but the firms I deal with are actively embracing e-discovery technology, not fighting it. They see it as another way they can add value to their clients, and would prefer to have their staff focused on practicing law, not mindlessly reading irrelevant documents. So I ended up spending a lot of time explaining to my non-legal friends that there are two sides to the coin. As for my friends who do happen to be lawyers, they focused on the Qualcomm case, pointing out (as we have written before) that the problem was not technology, but rather poor processes and bad judgment on the part of the attorneys concerned.

The second article appeared in the Economist and took a different tack. It argued that the stratospheric cost of e-discovery is gumming up the court system and preventing justice from being served. According to one former justice from Colorado quoted in the article, even mundane landlord-tenant disputes “are now digital wars of attrition”; there are “cases that are settled only because one party cannot afford the costs of e-discovery”; and, many “plaintiffs cannot afford to sue at all, for fear of the e-discovery costs.”

I love the Economist’s tongue-in-cheek style and thought the article made many valid points. My one disappointment was that its spin was unequivocally negative, as though e-discovery is a self-inflicted wound on the American judicial system. Nowhere was there mention of the fact that electronic evidence often helps litigants get at the truth. Rather than incomplete recollections or “he said-she said” claims and counter-claims, there’s no disputing an email that captures a person’s words and actions in black-and-white. Nor was there any mention of how technology is solving the problems that it inadvertently created: today, there are many products that rapidly sift through electronic information, dramatically lowering the cost of e-discovery.

It is great for everyone in the e-discovery community for our domain to get more ink in mainstream, quality publications. I expect that the trend will continue as the industry grows, and especially once the investigations start into our current financial meltdown.

The most striking aspect of the judgment, which is completely overlooked by many vendor articles seeking to spin it to their advantage, is the fact that this case wasn’t about a failure of e-discovery technology. It wasn’t about the attorneys not thinking enough about the best keyword strategy, or not understanding the need for conceptual search to ferret out additional responsive documents. Rather, at a key point in the trial, 21 highly relevant emails were discovered, but according to the order, “the Qualcomm trial team decided not to produce these newly discovered emails to Broadcom, claiming they were not responsive to Broadcom’s discovery requests.” Judge Major goes on: “The attorneys ignored the fact that the presence of the emails…undercut Qualcomm’s premier argument…The Qualcomm trial team failed to conduct any investigation to determine whether there were more emails that also had not been produced.”

Assuming that all of the facts are before us, this was not a computer algorithm problem. It was a human judgment problem.

Don’t get me wrong. Leveraging the right e-discovery technology is important, but not in the way that many vendors would have you believe. Search and analysis is becoming table stakes. What’s needed today are solutions that provide a system of “checks and balances” to track and monitor documents throughout the discovery process, making it harder for documents to be overlooked or ignored in the way that they seem to have been by the Qualcomm team – while enabling enterprises to have more ownership over all aspects of e-discovery.

Such technology will be the enabler, but in the end, it will be people – very likely in the form of an e-Discovery Team – that will save you from Qualcomm’s fate.

See below for the story, as told by Corporate Counsel in their October issue, with additional commentary from me [added in brackets]:

Collateral Damage

After a string of punishing legal defeats, Qualcomm Incorporated has switched general counsel. On August 13 the company announced that Carol Lam would replace Louis Lupin as its legal chief [Sounds like he got fired]. The move came a week after a federal judge issued a scorching order accusing Qualcomm and its outside lawyers of “gross litigation misconduct.” [Sounds like a pretty good reason why he got fired]

Emily Kilpatrick, Qualcomm’s director of corporate communications, says Lupin is leaving for personal reasons [Isn’t that what they always say?]. “He has been an outstanding leader and contributor to Qualcomm’s success over the past 12 years,” according to Kilpatrick. “However, he has decided to step down as general counsel and take a personal leave.” [a decision most likely made at the request of his boss]

Lam, who was hired in February to supervise Qualcomm’s worldwide litigation, will take over as interim GC, according to a company statement. Lam is one of the U.S. Attorneys fired by the U.S. Department of Justice this past winter. [oh, the irony…]

Based in San Diego, Qualcomm licenses semiconductor technology and system software to cell phone makers. For several years it’s been engaged in a pitched battle with rival Broadcom Corporation over who has infringed whose patents.

Qualcomm’s biggest problems have come in a case in San Diego federal district court. In January a jury ruled that the company had violated Broadcom’s patents. But even before the verdict, Qualcomm suffered a major setback as the trial drew to a close. One of the company’s witnesses revealed the existence of email that Broadcom said should have been produced during discovery. [Yet again, email is the smoking gun]

In April general counsel Lupin and one of Qualcomm’s outside attorneys sent letters of apology to the court, saying they failed to do a detailed enough keyword search of the company’s email. [No big deal, right? After all, we are saying sorry]

But that wasn’t enough for Judge Rudi Brewster, who has been hearing the San Diego case. On August 6 he issued a blistering 54-page ruling. He accused Qualcomm not only of failing to turn over more than 200,000 pages of relevant email and electronic documents during discovery, [i.e., this is a case of a deeply flawed e-discovery process, not of a simple missing email] but of engaging in a years-long campaign to deliberately mislead a technological standards body. Brewster ordered Qualcomm to pay Broadcomm’s litigation costs, and voided two of its patents. (David Rosmann, vice president of intellectual property litigation at Broadcom, estimates that its fees could be around $10 million). [The legal costs alone are several times what it would have cost Qualcomm to purchase an e-discovery solution and avoid this whole situation in the first place]

In a statement, Qualcomm said it “respectfully disagrees” with Brewster’s ruling and intends to appeal. “Qualcomm acknowledges the seriousness of the court’s findings and reiterates its previous apology to the court for the errors made during discovery and for the inaccurate testimony of certain of its witnesses,” the statement read. [We said sorry, isn’t that enough for you guys?]

The company’s problems aren’t over, however. Federal magistrate judge Barbara Major is now considering whether to levy sanctions against Qualcomm’s attorneys. [Don’t think you can hide behind your deep-pocketed employer. If you screw up e-discovery, it will be your neck on the line] Major has given “any and all…attorneys who signed discovery responses, signed pleadings and pretrial motions, and/or appeared at trial on behalf of Qualcomm” until September 21 to file a statement explaining why they shouldn’t be penalized. [For the lawyers in question, it’s guilty unless their arguments convince the judge they are innocent]